Ray Ison, Professor in Systems at the UK Open University since 1994, is a member of the Applied Systems Thinking in Practice Group. From 2008-15 he also developed and ran the Systemic Governance Research Program at Monash University, Melbourne. In this blog he reflects on contemporary issues from a systemic perspective.

Tuesday, November 25, 2014

The after dinner speaker at a recent Peter Cullen Trust meeting was John Hewson, former leader of the Australian Liberal party who is now a strident critic of much that is being done (and not done) by the incumbent Federal Liberal/National Party government. It was for me a very inspiring talk. Why? Because I experienced it as authentic, well reasoned, and evidenced a person who was prepared to 'walk his talk'.

I was particularly impressed by the work that John and
colleagues are doing under the aegis of "The Asset Owners Disclosure Project" (AODP). This is "an independent not-for-profit global organisation
whose objective is to protect members' retirement savings from the risks posed
by climate change by improving the level of disclosure and industry best
practice." It is worth looking at the interview with John at the Festival of Dangerous Ideas in Sydney, Australia, located on the project website where he discusses "how your pension is destroying the planet." I sincerely hope his work contributes to accelerated growth of the divestment movement.

The AODP has created an index "following information requests to the world’s 1000
largest asset owners including over 800 pension funds, 80 insurance
companies, 50 sovereign wealth funds and 30 foundations/endowments.
Together, they manage more than US$70 trillion". The index supports the aim of AODP to "help funds to redress the huge imbalance in
their investments between high-carbon assets (50-60% of a portfolio) and
low-carbon assets (typically less than 2%) and realign the
investment chain to adopt long-term investment practices".

What is particularly impressive is that John has understood the science of climate change for a long time and has been a consistent advocate for innovation and change that moves us collectively towards a post-carbon society. Of course this is yet another commitment that places him out of sympathy with the current Australian government, who have clearly been shown at the recent G20 meeting to be out of step with the rest of the world.

Since becoming aware of the AODP project I have wondered if
those involved in the project and those who support its aims are also aware of
some broader systemic issues that also warrant transformation?For example, Simon Caulkin, a former management
editor of the Observer (UK), has been one of the most consistent critics of the
distortions in management understandings and practices that now seem to be
taken for granted. In a recent article he explains how these insights emerged
for him:

“….management didn’t do what it said on the tin, and now,
knitting together what I had sensed before, I thought I could see why, although
I struggled to express it.

But although I had most of the pieces, the final epiphany
only came later. It arrived in three parts. One was at a conference in Brussels
last February, put on by an enterprising Czech-based NGO, the Frank Bold
Society, on The Purpose of the Corporation. The briefing included a memo which
set out the legal position in black and white: across jurisdictions, as a
matter of law, shareholders don’t own the corporation, and directors’ fiduciary
duty is to the company with which they have a contract. So in brief,
shareholder capitalism, and the whole theory of corporate governance that has
evolved to sustain it, including the assumptions about human nature and
behaviour that it is supposed to control, is based on a myth.

The second ‘aha’ moment was at a Vanguard conference on
health, some of the profound findings of which I wrote about here. One of them
was that the thinking that would make the difference between a manageable and
unmanageable NHS was not inherently difficult: it was just different. So
different, in fact, that the existing management worldview couldn’t be modified
to incorporate it – change could only come if that worldview was replaced. That
helped to explain why initial resistance to the ideas was so strong.

The third element was an invitation to a workshop put on by
the alumni of the Open University’s Systems Thinking in Practice course. The
aim of the event was to give support and sustenance to systems thinkers who,
for the reasons outlined above, could easily find themselves isolated and
discouraged at work. I had expected to be interested and stimulated by the
occasion, but it turned out to be rather more than that. Slightly unwillingly I
found myself participating in an exercise designed to draw the lessons from a
situation where systems thinking had helped in the past and consider how to
apply them again in the future.

Bingo! Suddenly, reflecting on my trajectory, I could see
what had been staring me in the face all along. It’s a system, stupid. The
management apparatus that has been developed in business school and university
economics and finance departments to further shareholder value and control is
all of a piece, from governance, through the measures and techniques used,
right down to performance management on the shop or call-centre floor. If the
organising principle of shareholder primacy can’t be justified, it’s not an
accident that so much of management designed around it is ‘wrong’ – the
surprise would be if any of it were right.”

“Starting in the 1980s, elite business schools began
teaching future managers and investors that the only metric that matters is
shareholder value. This was a dramatic change, as throughout most of its
history American capitalism had operated on a stakeholder model in which
managers sought to balance the interests of multiple stakeholders, including
investors, customers, employees, and local communities. The shareholder-value
revolution created a short-term quarterly earnings culture, a bias toward
sweating assets versus building them, a view that employees are a cost to be
managed rather than human capital to be invested in, and a love of debt. It
also made CEOs and their top managers immensely rich by showering them with
stock options. While CEO compensation shot upwards, corporate debt levels
climbed, R&D spending dropped, and employee churn and temporary work rose.”

John Menadue, and a series of posting by Ian McAuley explore some of these broader systemic issues that raise serious concerns about the status and institutions of contemporary capitalism.